The brilliant odd lots podcast had Richard Koo on to discuss his theory of a balance sheet recession. The central idea is that when a credit bubble bursts and the private sector and consumers both start to deleverage it causes the economy to go into a demand loss spiral, which is a counterintuitive result. If excess leverage caused the bubble then deleveraging and repairing your balance sheet is the most rational individual choice, but this de-levering in aggregate is the wrong choice for the economy as a whole. I would highly recommend reading this paper that goes into some details and also reading his book.
Alphachat (great podcast btw) had a recent episode on Labor market slack that raised some intriguing questions. The central question is how to define slack, what is the right metric. The end result was that slack means different things to different people – but there is one thread that I’d like to explore more.
Let’s start with the concept of NAIRU (non-accelerating inflation rate of unemployment). Wikipedia defines it as “NAIRU refers to a level of unemployment below which inflation rises”.Central Bank Monetary policy is always and forever worried about inflation. The expected cycle is that as unemployment falls, wages will rise as supply of workers is constrained – less supply, more depends, prices i.e wages have to rise. When wages rise, input costs for producers rise which they will pass on the end consumers. Thus the general price level of the economy will rise hence leading to inflation. Read More »
A thought experiment on the sort of fintech experiences and products we’d want as consumers in the distant (or near) future. The thought process is structured as a conversation between an older father and an adult son. Italics is the dad.
So son, hows your financial life going? Everything under control?
<Disclaimer>This is going to a wonkish post. More of a brain dump on a few interesting ideas in my head, not fully flushed out by any means!</Disclaimer>
I’ve been really intrigued by the “Beyond Scarcity” series by Izabella Kaminska over at FT alphaville. The main thrust of the theory is that humanity has a certain set of needs like food, shelter, security and consumable goods i.e has a level of consumption. Throughout history there has been a scarcity of these items and mankind furiously progressed to make these items available. To grease this production of these items the concept of “money” was invented. Money facilitates the exchange of these goods better than the barter system.This is also why we have entreunpership. There was opportunity to provide humanity with things that it needed in a productive way and earn some “money”. The general public now also had to “earn money” to buy goods. Thus now everybody had to have a “job” and had to work for a living. This general model now caused money to have a positive time value and it itself became an appreciating good. Money had to grow and therein came the concept of interest and the expectation that money should always grow in value. The flip side was the concept of inflation. Since we were still in a scarcity environment, even as more goods started coming to market, demand was still high so prices rose and inflation came into being. Also as money kept getting interest and growing in quantity, there was more money chasing fewer goods, again leading to the concept of inflation. So the need for certain goods and the scarcity of those goods, has what led to mankind creating the concepts of money, interest and inflation.Read More »